This document is a copy of the 8-K/A current report filed on
January 17, 1996, pursuant to a rule 201 temporary hardship
exemption.
SECURITIES AND EXCHANGE COMMISSION
----------------------------------
WASHINGTON, D.C. 20549
FORM 8-K/A
----------
CURRENT REPORT
--------------
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) November 1, 1995
- -----------------------------------------------------------------------
FOREST LABORATORIES, INC.
- -----------------------------------------------------------------------
(Exact name of registrant as specified in its character)
DELAWARE 1-5438 11-1798614
- ---------------------------- ------------- ---------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
909 THIRD AVENUE, NEW YORK, NEW YORK 10022
- ---------------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 212-421-7850
------------
- -------------------------------------------------------------------------
Former name or former address, if changed since last report.)
PAGE
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO-FORMA FINANCIAL INFORMATION
-----------------------------------------------------
AND EXHIBITS
------------
(a) Financial Statements. The following financial
statements of Biovail Corporation International ("BCI") are filed
as part of this Current Report on Form 8-K:
(1) The consolidated financial statements of
BCI for the fiscal year ended December
31, 1994. Incorporated herein by
reference to Item 19(a) of the Annual
Report on Form 20-F of BCI for the
fiscal year ended December 31, 1994.
(2) The consolidated financial statements of
BCI for the six months ended June 30,
1995. Incorporated herein by reference
to Part I of the Report on Form 6-K of
BCI for the quarterly period ended June
30, 1995.
(b) Pro-Forma financial information. The Pro Forma
Condensed Consolidated Balance Sheet of Forest Laboratories, Inc.
and Subsidiaries as at September 30, 1995.
PAGE
<PAGE>
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
UNAUDITED PRO FORMA
-------------------
CONDENSED CONSOLIDATED BALANCE SHEET
------------------------------------
The following unaudited pro forma condensed consolidated balance sheet as of
September 30, 1995, reflects the pro forma condensed consolidated balance
sheet of Forest Laboratories, Inc. and Subsidiaries ("Forest"), giving effect
to the pro forma adjustment described herein as though the acquisitions had
occurred on September 30, 1995. Unaudited pro forma condensed consolidated
statements of income for the year ended March 31, 1995 and the six months
ended September 30, 1995 have not been presented, as the pro forma
adjustments would have an immaterial effect on these statements. The
unaudited pro forma condensed consolidated balance sheet gives effect to
Forest's acquisition of 1,800,000 common shares, without par value, of
Biovail Corporation International ("BCI") and the acquisition of an exclusive
license to market Biovail Laboratories, Inc.'s, a wholly-owned subsidiary of
BCI, once-daily formulation of diltiazem in the United States. The aggregate
consideration paid for the acquisitions was approximately $95.6 million.
For a more detailed description of the terms of the acquisitions see the Form
8-K filed by Forest on November 1, 1995.
PAGE
<PAGE>
<TABLE>
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
----------------------------------------------
SEPTEMBER 1995
--------------
(UNAUDITED)
-----------
Pro Forma
Historical Adjustments(1) Pro Forma
---------- -------------- ---------
<S> <C> <C> <C>
(In thousands except for par values)
ASSETS
- ------
Current Assets:
Cash $103,989 ($95,600) $ 8,389
Marketable securities 20,354 20,354
Accounts receivable, net 162,333 162,333
Inventories 45,396 45,396
Deferred income taxes 12,499 12,499
Other current assets 14,692 14,692
-------- --------
Total current assets 359,263 263,663
-------- --------
Long-term marketable securities 148,404 148,404
-------- --------
Property, plant and equipment, net 76,731 76,731
-------- -------
Total other assets 238,984 95,600 334,584
-------- -------
Total Assets $823,382 $823,382
======== ========
LIABILITIES AND SHAREHOLDERS EQUITY
- -----------------------------------
Current liabilities:
Accounts payable $ 13,357 $ 13,357
Accrued expenses 31,822 31,822
Income taxes payable 20,728 20,728
-------- --------
Total current liabilites 65,907 65,907
-------- --------
Deferred income taxes 294 294
-------- --------
Shareholders' equity:
Series A junior participating
preferred stock $1.00 par,
1,000 shares authorized
no shares issued or outstanding
Common stock, $.10 par; shares
authoirzed 250,000;
Issued 47,935 shares 4,794 4,794
Capital in excess of par 299,619 299,619
Retained earnings 493,504 493,504
Cumulative foreign currency
translation adjustments ( 75) ( 75)
-------- --------
797,842 797,842
Less common stock in treasury,
at cost (2,644 shares) 40,661 40,661
-------- --------
Total shareholders' equity 757,181 757,181
-------- --------
Total Liabilities and
Shareholders' Equity $823,382 $823,382
======== ========
(1) Reflects acquisition of 1,800,000 shares of Biovail Corporation
International and exclusive product license.
</TABLE>
PAGE
<PAGE>
(c) The following exhibits are filed herewith:
(1) The Investment Agreement. Incorporated by reference to
Exhibit (c)(1) to the Schedule 14D-1 filed by Forest on
September 18, 1995 (the"Schedule 14D-1").
(2) The License Agreement. Incorporated by reference to
Exhibit (c)(2) to the Schedule 14D-1.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registranthas duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FOREST LABORATORIES, INC.
Date: January 12, 1996
By: /S Kenneth E. Goodman
---------------------
Kenneth E. Goodman,
Vice President-Finance
PAGE
<PAGE>
INDEX TO FINANCIAL STATEMENTS
-----------------------------
Page
Report of Management . . . . . . . . . . . . . . . . . . . . . . . . . .F-2
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . .F-3
Consolidated Balance Sheets as at December 31, 1993 and 1994 . . . . . .F-4
Consolidated Statements of Income (Loss) and Deficit for each of
the years in the three year period ended December 31, 1994 . . . . . . .F-5
Consolidated Statements of Changes in Financial Position for
each of the years in the three year period ended December 31, 1994 . . .F-6
Notes to the Consolidated Financial Statements . . . . . . . . . . . . .F-7
F1
PAGE
<PAGE>
REPORT OF MANAGEMENT
- --------------------
The Company's management is responsible for preparing the accompanying
consolidated financial statements in conformity with accounting principles
generally accepted in Canada. The effect of the application of accounting
principles generally accepted in the United States is described in the notes
to consolidated financial statements. In preparing these consolidated
financial statements, management selects appropriate accounting policies
and uses its judgment and best estimates to report events and transactions
as they occur. Management has determined such amounts on a reasonable basis
in order to ensure that the financial statements are presented fairly, in
all material respects. Financial data included throughout this Annual
Report is prepared on a basis consistent with that of the financial
statements.
The Company maintains a system of internal accounting controls designed
to provide reasonable assurance, at a reasonable cost, that assets are
safeguarded and that transactions are executed and recorded in accordance
with the Company's policies for doing business. This system is supported
by written policies and procedures for key business activities; the
hiring of qualified, competent staff; and by a continuous planning and
monitoring program.
Deloitte & Touche has been engaged by the Company's shareholders to audit
the consolidated financial statements. During the course of their audit,
Deloitte & Touche reviewed the Company's system of internal control to the
extent necessary to render their opinion on the consolidated financial
statements.
The Board of Directors is responsible for ensuring that management fulfills
its responsibility for financial reporting and is ultimately responsible for
reviewing and approving the financial statements. The Board carries out
this responsibility principally through its Audit Committee. The majority
of the members of the Audit Committee are outside Directors. The Committee
considers, for review by the Board of Directors and approval by the
shareholders, the engagement or re-appointment of the external auditors.
Deloitte & Touche has full and free access to the Audit Committee.
Management acknowledges its responsibility to provide financial information
that is representative of the Company's operations, is consistent and
reliable, and is relevant for the informed evaluation of the Company's
activities.
Toronto, Canada Eugene Melnyk Mahmood Khan
April 17, 1995 Chairman of the Board Senior Vice President
and Chief Financial
Officer
F2
PAGE
<PAGE>
AUDITORS' REPORT
- ----------------
To the Board of Directors and Shareholders of
BIOVAIL CORPORATION INTERNATIONAL
We have audited the consolidated balance sheets of Biovail Corporation
International as at December 31, 1993 and 1994 and the consolidated
statements of income (loss) and deficit and of changes in financial
position for each of the years in the three year period ended
December 31, 1994. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
1standards in Canada. Those standards require that we plan and perform
an audit to obtain reasonable assurance whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly,
in all material respects, the financial position of the Company as at
December 31, 1993 and 1994 and the results of its operations and the
changes in its financial position for each of the years in the three year
period ended December 31, 1994 in accordance with generally
accepted accounting principles in Canada.
DELOITTE & TOUCHE
Chartered Accountants
Toronto, Canada
April 17, 1995, except as to Note 17(c)
which is as of April 28, 1995.
F3
PAGE
<PAGE>
<TABLE>
BIOVAIL CORPORATION INTERNATIONAL
CONSOLIDATED BALANCE SHEETS
(All dollar amounts are expressed in Canadian dollars)
December 31, December 31,
1993 1994
------------ ------------
<S> <C> <C>
ASSETS
------
CURRENT
Cash and short-term deposits . ... . . . . . $3,817,894 $ 3,950,746
Trade accounts receivable. .. . . . . . . . 3,756,554 7,493,692
Inventories (Note 4) . . . . . . . . . . . . - 672,625
Deposits and prepaid expenses. . . . . . . . 361,298 80,220
Due from directors, current portion (Note 5) . 956,656 -
Loans to related parties . . . . . . . . . . 118,943 -
----------- -----------
9,011,345 12,197,283
DUE FROM DIRECTORS (Note 5). . . . .. . . . . . 1,074,821 -
INVESTMENTS AND ADVANCES (Note 3). .. . . . . . 225,005 -
FIXED ASSETS, net (Note 6) . . . . . . . . . . 19,139,953 19,880,074
GOODWILL AND OTHER INTANGIBLE ASSETS,
net (Note 3) . . . . . . . . . . . . . . . . 1,350,855 3,848,552
----------- -----------
$30,801,979 $35,925,909
=========== ===========
LIABILITIES
-----------
CURRENT
Bank indebtedness (Note 7) . . . . . . . . $173,526 $ -
Accounts payable and accrued liabilities . . 4,431,723 6,528,984
Income taxes payable . . . . . . . . . . . . 775,868 1,032,395
Deferred revenue . . . ... . . . . . . . . . 465,777 1,736,225
Amount due on acquisition (Note 3) . . . . . - 1,339,000
Current portion of long-term debt (Note 8) .. 68,339 794,381
----------- -----------
5,915,233 11,430,985
------------ -----------
LONG-TERM DEBT (Note 8)
Non-interest bearing and forgivable
interest government loans . . .. . .. . 12,935,300 6,611,560
Unsecured notes payable. . . . . . . . . . 7,500,000 -
Other. . . . . . . . . . . . . . . . . . 7,895,185 7,100,803
----------- ------------
28,330,485 13,712,363
----------- ------------
MINORITY INTEREST (Note 8) . . . . .. . . . 2,869,393 -
----------- ------------
37,115,111 25,143,348
----------- -----------
COMMITMENTS AND CONTINGENCIES
(Notes 6, 8, 15 and 17)
SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY)
-----------------------------------------
Share capital (Note 9) .. . . . . . . . . . 15,778,970 18,804,361
Deficit . .. . . . . . . . . . . . . . . (22,292,656) (9,030,116)
Cumulative translation adjustment. . . . . . .200,554 1,008,316
----------- ----------
(6,313,132) 10,782,561
---------- ----------
$30,801,979 $35,925,909
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F4
PAGE
<PAGE>
<TABLE>
BIOVAIL CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND DEFICIT
(All dollar amounts are expressed in Canadian dollars)
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1992 1993 1994
------------ ------------ ------------
<S> <C> <C> <C>
REVENUE
Contract . . . . .. . . . . . . $4,001,011 $4,992,653 $ 5,478,962
Manufacturing. . .. . . . . . . - - 6,973,361
Royalty, licensing and other. . 3,577,542 9,741,607 11,780,489
---------- ---------- ----------
7,578,553 14,734,260 24,232,812
---------- ---------- ----------
EXPENSES
Cost of contract revenue . . . 3,238,387 3,684,331 4,255,128
Cost of manufactured goods sold. . - - 2,946,914
Research and product development . 5,888,236 3,623,638 3,562,723
Selling and administrative
(Note 10). . . . . . . . . . . . 6,970,049 7,569,869 8,522,971
Royalty and commission . . . . . . - 1,853,305 1,015,014
---------- ---------- ----------
16,096,672 16,731,143 20,302,750
---------- ---------- ----------
OPERATING INCOME (LOSS). . . . .. . (8,518,119) (1,996,883) 3,930,062
INTEREST EXPENSE, net (Note 8) . . (1,506,882) (955,508) (824,658)
GAIN ON DEBT SETTLEMENT (Note 2) . . - - 11,151,170
REORGANIZATION EXPENSES (Note 11). . - - (391,318)
OFFERING EXPENSES (Note 12). . . . . (1,416,642) - -
----------- ---------- -----------
INCOME (LOSS) BEFORE INCOME TAXES. (11,441,643) (2,952,391) 13,865,256
PROVISION FOR INCOME TAXES(Note 13) 443,134 328,958 602,716
----------- ---------- ----------
INCOME (LOSS) BEFORE UNDERNOTED. . (11,884,777) (3,281,349) 13,262,540
MINORITY INTEREST. . . . . . . . . (991,797) (961,669) -
DILUTION GAIN ON ISSUANCE OF COMMON
SHARES BY A SUBSIDIARY
COMPANY (Note 8) . . . . . . 2,468,373 7,773,080 -
GAIN ON SALE OF A SUBSIDIARY
COMPANY (Note 3). . . . . . . - 1,668,665 -
SHARE OF NET LOSS OF EQUITY-
ACCOUNTED INVESTMENTS.. . . . (32,126) - -
----------- ---------- -----------
NET INCOME (LOSS) (Note 18). . (10,440,327) 5,198,727 13,262,540
DEFICIT, BEGINNING OF YEAR . . (16,975,459) (27,415,786) (22,292,656)
EXCESS OF COST OF COMMON SHARES
ACQUIRED
OVER THE STATED CAPITAL
THEREOF (Note 9). . . . . . - (75,597) -
----------- ------------ ------------
DEFICIT, END OF YEAR . . . .. $(27,415,786) $(22,292,656) $(9,030,116)
============ ============ ============
EARNINGS (LOSS) PER SHARE
(Note 14). . . . . . . . . . $(2.94) $ 1.09 $ 1.82
=========== ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING. . . . . 3,617,261 4,222,378 7,283,239
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F5
PAGE
<PAGE>
<TABLE>
BIOVAIL CORPORATION INTERNATIONAL
---------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
--------------------------------------------------------
(All dollar amounts are expressed in Canadian dollars)
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1992 1993 1994
------------ ------------ ------------
<S> <C> <C> <C>
NET INFLOW (OUTFLOW) OF CASH RELATED TO
THE FOLLOWING ACTIVITIES
OPERATING
Net income (loss) for year . .. $(10,440,327) $5,198,727 $13,262,540
Depreciation and amortization. . 569,238 901,959 1,134,731
Write-off of deferred costs of
proposed share issue. . . . . 913,604 - -
Minority interest. . . . . . . . 991,797 961,669 -
Dilution gain on
issuance of common shares
by a subsidiary company. . . . (2,468,373) (7,773,080) -
Gain on debt settlement. . . . . - - (11,151,170)
Gain on sale of a subsidiary company - (1,668,665) -
Share of net loss of equity-accounted
investments. . . . . .. . . . 32,126 - -
Other. . . . . . . . . . . . . . - (16,866) (135,772)
------------ ----------- ----------
(10,401,935) (2,396,256) 3,110,329
Change in non-cash operating
working capital (Note 16) . . . 127,332 (369,289) 470,656
----------- ----------- ----------
(10,274,603) (2,765,545) 3,580,985
----------- ----------- ----------
INVESTING
Amounts advanced to directors to
acquire shares (Note 5). . . . (34,500) (73,419) -
Additions to fixed assets . . . (4,626,000) (430,337) (1,643,584)
Proceeds from sale of fixed assets. . - 100,669 -
Investment and advances . . . . . . . (20,086) - 225,005
Cash paid on acquisition of
remaining 50% interest in
Professional Drug Systems, Inc.,
net of cash acquired . . . . . . . - (332,300) -
Additional consideration with respect
to the acquisition of
subsidiary companies and minority
interest therein (Note 3) . . . ... - (716,000) (2,814,478)
---------- ----------- -----------
(4,680,586) (1,451,387) (4,233,057)
--------- --------- ----------
FINANCING
Dividends paid by subsidiary company
to minority interest. . . . . . . . (950,665) (790,957) -
Issuance of share capital (Note 9) . 9,558,000 230,000 86,289
Redemption of share capital (Note 9) . - (1,504,000) -
Proceeds from issuance of convertible
subordinated debentures, net
of financing costs . . . . . . . . 7,769,622 - -
Proceeds from issuance of common
shares of a subsidiary company,
net of financing costs. . . . . . . - 3,902,334 -
Proceeds from sale of a
subsidiary company . . . . . . . . - 2,656,000 -
Increase in long-term debt . . . . 12,258,041 1,489,714 514,260
Reduction in long-term debt. . . . (9,966,510) (567,413) (68,340)
Purchase of common shares. . . . . - (168,481) -
----------- ---------- ---------
18,668,488 5,247,197 532,209
----------- ---------- ---------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH. . . . . . .. . . . . . . . 38,280 46,261 426,241
---------- --------- ---------
INCREASE IN CASH . . . . . . . . . . 3,751,579 1,076,526 306,378
CASH (BANK INDEBTEDNESS), BEGINNING OF
YEAR. . . . . . . . . . . . . .. (1,183,737) 2,567,842 3,644,368
----------- --------- ---------
CASH, END OF YEAR. . . . . . . . . . $ 2,567,842 $3,644,368 $3,950,746
=========== ========== ==========
REPRESENTED BY
Cash and short-term deposits. . . $3,576,476 $3,817,894 $3,950,746
Bank indebtedness . . . . . . . . (1,008,634) (173,526) -
---------- ---------- ----------
$2,567,842 $3,644,368 $3,950,746
========== ========== ==========
The accompanying notes are an integral part of the consolidated financial statements
</TABLE>
F6
<PAGE>
BIOVAIL CORPORATION INTERNATIONAL
---------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(All dollar amounts are expressed in Canadian dollars)
1. SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
Biovail Corporation International (the "Company"), was amalgamated
effective March 29, 1994 (See Note 2) under the laws of the province of
Ontario. The Company's accounting and reporting policies conform to
generally accepted accounting principles in Canada. The applicable
differences between generally accepted accounting principles in Canada
and generally accepted accounting principles in the United States are
disclosed in Note 18. (For purposes of this reconciliation, the
adoption of SFAS No. 109 - "Account for Income Taxes" does not have
a material effect on the financial statements prepared in accordance
with generally accepted accounting principles in the United States).
The significant accounting policies are:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of all
companies more than 50% owned after the elimination of intercompany
transactions and balances.
INVESTMENTS
Prior to their disposition, the Company's investments in companies
and joint ventures in which it had a significant influence were
accounted for using the equity method.
REVENUE RECOGNITION
Revenue from contract research activities is recognized using the
percentage of completion method based upon the stage
of the project or the amount of time spent on the project.
Revenue from the sale of manufactured products is recognized when the
product is shipped to the customer.
Royalty revenue is recognized on an accrual basis in accordance
with the contractual agreements with third parties.
Licensing revenue is recognized at the date the license is granted
unless there are specific events which must be completed
under the terms of the licensing agreement in which case a portion of
the revenue is recognized upon the completion of each specific event.
Amounts received in excess of revenue recognized are included in
deferred revenue.
INVENTORIES
Raw materials are valued at the lower of cost and replacement cost.
Work in process and finished goods are valued at the lower of cost and net
realizable value. Cost is determined on the first-in, first-out basis.
FIXED ASSETS AND RELATED DEPRECIATION
Fixed assets are recorded at cost. Annual rates and bases of
depreciation applied to depreciate the cost of fixed assets
over their estimated useful lives using the straight line basis are
follows:
Buildings including manufacturing facility . . .. . . . . .25 years
Manufacturing equipment. . . . . . . . . . . . . . . . . .10 years
Other equipment. . . . . . . . . . . . . . . . . . . . . 5 years
Computer software. . . .. . . . . . . . . . . . . . . . . . 3 years
Furniture and fixtures . . . . . . . . . . . . . . . . . . 5 years
Leasehold improvement. . . . . . . . . . . . . . . .term of lease
Automobiles. . . . . . . . . . . . . . . . . . . . . . . .. 3 years
F7
PAGE
<PAGE>
BIOVAIL CORPORATION INTERNATIONAL
----------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(All dollar amounts are expressed in Canadian dollars)
1. SIGNIFICANT ACCOUNTING POLICIES - (Continued)
GOODWILL
Goodwill is amortized on a straight-line over 20 years. Goodwill
is evaluated periodically and if conditions warrant, an impairment
valuation is provided.
RESEARCH AND PRODUCT DEVELOPMENT
Research and product development costs, including the cost of
licenses for products under development, net of any investment tax
credits, are charged to earnings in the year in which they are incurred.
FOREIGN CURRENCY TRANSLATION
Foreign currency transactions
Monetary assets and liabilities are translated into Canadian
dollars at the rate of exchange prevailing at the balance sheet
date. Non-monetary assets and liabilities are translated at historic
rates. Revenue and expenses are translated at the average rate of
exchange for the year. Exchange gains and losses are included in
operations except for unrealized gains or losses on long-term debt
which are deferred and amortized over the term of the debt.
Self-sustaining foreign subsidiaries
Assets and liabilities of self-sustaining foreign subsidiaries are
translated at the rate of exchange in effect at the balance sheet date.
Revenue and expenses are translated at the average rate of exchange for
the year. Gains or losses arising on the translation of financial
statements of self-sustaining foreign subsidiaries are deferred and
included as a separate component of shareholders' equity (capital
deficiency). The net change in the cumulative translation
adjustment balance in the periods presented is primarily due to the
fluctuations in the exchange rate in respect to the Swiss Franc.
1992 AND 1993 FIGURES
Certain of the 1992 and 1993 figures have been reclassified to
conform to the 1994 presentation.
2. AMALGAMATION AND DEBT ASSUMPTION AGREEMENTS
The Company was formed upon the amalgamation of its predecessor
companies, Trimel Corporation ("Trimel") and its then subsidiary Biovail
Corporation International ("BCI") involving transactions which included
the following:
(a) The assumption by Trimel (Canada) Inc. ("TCI"), a company
controlled by a director of the Company, of Trimel's
indebtedness to Western Economic Diversification ("WED") of
$6,838,000 and the indebtedness to Trimel's noteholders
of $8,625,000, which includes principal and accrued interest to
the date of maturity of such notes. In consideration for
assuming such indebtedness aggregating $15,463,000, Trimel
assigned to TCI, amounts due from directors of approximately
$2,000,000 and 1,656,000 shares of BCI owned by Trimel. This
transaction resulted in a gain on settlement of debt of
$11,151,000. No provision for income taxes has been recorded
with respect to this gain as the loss carry forwards available
are sufficient to offset the gain in its entirety. Under U.S.
GAAP, this gain would be recorded as contributed surplus.
(See Note 18)
(b) The amalgamation of Trimel and BCI whereby shareholders of Trimel
and BCI each received one common share of the amalgamated company
for each common share of Trimel and BCI, respectively (other
than shares of BCI held by Trimel) and the holders of Class A
Special Shares of Trimel received one common share of the
amalgamated company for each 5.35 Class A Special Shares.
Following the amalgamation there were 8,245,576 common shares of
the amalgamated company outstanding. Since virtually all of the
assets of the amalgamated company were those of BCI prior to the
amalgamation, in substance no change in the ownership interest of
the BCI minority shareholders has taken place. Accordingly,
the exchange of BCI shares held by minority shareholders for shares of
the amalgamated company has been accounted for based on the carrying
amounts of BCI's assets and liabilities prior to the amalgamation.
F8
PAGE
<PAGE>
BIOVAIL CORPORATION INTERNATIONAL
---------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(All dollar amounts are expressed in Canadian dollars)
3. BUSINESS ACQUISITIONS AND DISPOSITIONS
--------------------------------------
ACQUISITION OF BIOVAIL SA AND BIOSYTES N.V.
Effective May 4, 1991, a subsidiary of the Company acquired 50.2%
of Biovail SA ("BSA") and 52% of Biosytes N.V.("BNV"), companies
involved in the development and licensing of controlled release
pharmaceuticals. Under the terms of the purchase of 50.2% of the
shares of BSA and 52% of the shares of BNV, the Company was
obligated to pay contingent consideration, calculated on a formula
basis, relative to net royalties earned by BSA and BNV for the six
month period immediately preceding the second anniversary
of the closing of the acquisition, less the amounts originally payable
on closing in May 1991. On August 19, 1993, the parties agreed to
a final determination of the additional consideration in the amount
of $716,000 which was satisfied by payment of $300,000 in cash and
the issuance of 46,355 shares of the Company's common stock. Such
consideration was recorded as additional goodwill related to the
acquisition.
Pursuant to the terms of various Shareholders' agreements, as
amended, by and among the Company, BSA and the minority shareholder
(the "Minority Shareholder"), on December 29, 1993, the Company gave
notice to the Minority Shareholder of the exercise of its call option
to require the Minority Shareholder to sell his minority interests in
BSA and BNV to the Company.
In January 1995, the Company and the Minority Shareholder reached
an agreement whereby the effective date of the acquisition of the
minority interests was determined to be January 1, 1994 and the aggregate
amount payable to the Minority Shareholder with respect to all
entitlements was determined to be $4,153,000 of which $2,814,000 had
been paid prior to December 31, 1994.
Accordingly, the consolidated balance sheet as at December 31, 1994
reflects an amount due on acquisition of $1,339,000 being the excess of
the aggregate cost of the acquisition of the minority interest over the
amount previously paid to the Minority Shareholder which amount was paid
in January 1995 and goodwill has been increased by $2,729,000 being the
amount of the consideration paid in excess of the net book value of the
minority interest acquired effective January 1, 1994.
OTHER ACQUISITIONS AND DISPOSITIONS
On January 23, 1993, the Company acquired the remaining 50%
interest in Professional Drug Systems, Inc. (which represents all shares
not already owned by the Company) for a total cash consideration of
$382,970 (U.S. $275,000).
As part of a strategy to dispose of non-core business activities,
on October 22, 1993, the Company sold its investment in Professional
Drug Systems, Inc. for aggregate proceeds (including settlement of
intercompany indebtedness) of approximately $3,000,000, resulting in a
gain on sale of $1,669,000. In addition during 1994, the PhoneServe
Joint Venture in which the Company had a 50% interest was liquidated
and the joint venture partners agreed to a settlement of all amounts
previously in dispute. Upon the distribution of the net assets to the
joint venture partners, the Company realized an amount approximating
the carrying value of its investment and advances in the joint
venture which at December 31, 1993 amounted to $225,005.
4. INVENTORIES
December 31, December 31,
1993 1994
------------ ------------
Raw materials . . . . $ - $385,722
Work in process . . . . - 286,903
--------- --------
$ - $672,625
F9
<PAGE>
<PAGE>
BIOVAIL CORPORATION INTERNATIONAL
---------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(All dollar amounts are epxressed in Canadian dollars)
5. DUE FROM DIRECTORS
------------------
Included in the amounts due from directors as at December 31, 1993
were loans of $1,644,908, made to finance the acquisitions of shares
of the Company. These loans bore interest at 1/2% over the bank prime
rate. As disclosed in Note 2, the amounts due from directors were
assigned to TCI in March 1994.
<TABLE>
6. FIXED ASSETS
------------
December 31, 1994
-----------------------------------------------
Accumulated Net Book
Cost Depreciation Value
--------- ------------ ----------
<S> <C> <C> <C>
Land. . . . . . . . . . . 1,255,171 $ - $ 1,255,171
Building . . . . . . . . 3,590,639 687,806 2,902,833
Manufacturing facility . . 12,589,727 125,897 12,463,830
Machinery and equipment. . 4,247,656 1,364,873 2,882,783
Computer software. . . . . 31,224 8,902 22,322
Furniture and fixtures . . 976,434 632,997 343,437
Leasehold improvements . . 200,044 192,218 7,826
Automobiles. . . . . . . . 74,760 72,888 1,872
----------- ---------- -----------
$22,965,655 $3,085,581 $19,880,074
=========== ========== ===========
</TABLE>
<TABLE>
December 31, 1993
------------------------------------------------
Accumulated Net Book
Cost Depreciation Value
--------- ------------ ---------
<S> <C> <C> <C>
Land . . . . . . . . . . $ 1,255,171 $ - $ 1,255,171
Building . . . . . . . . . 3,499,509 547,255 2,952,254
Manufacturing facility . . 12,598,504 - 12,598,504
Machinery and equipment. . 2,819,563 946,217 1,873,346
Computer software. . . . . 9,070 6,203 2,867
Furniture and fixtures . . 863,356 470,072 393,284
Leasehold improvements . . 200,044 162,515 37,529
Automobiles. . . . . . . . 89,166 62,168 26,998
----------- ----------- ------------
$21,334,383 $ 2,194,430 $ 19,139,953
=========== =========== ============
</TABLE>
Construction of the manufacturing facility was substantially
completed in March 1993. As at December 31, 1994, the Company expected
to spend a further amount of approximately $4,000,000 in additional
capital expenditures for production and other equipment, of which
37.5% of such expenditures will be financed by a non-interest bearing
loan from a Canadian government agency. The Company has obtained a
commitment from a Canadian chartered bank for the balance of the
equipment financing.
7. BANK INDEBTEDNESS
-----------------
The current bank indebtedness is secured by a general security
agreement, a general assignment of accounts receivable and bears interest
at the bank prime rate plus %. The bank prime rate at December 31, 1994
and December 31, 1993 was 8.0% and 5.5%, respectively.
F10
PAGE
<PAGE>
BIOVAIL CORPORATION INTERNATIONAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts are expressed in Canadian dollars)
<TABLE>
8. LONG-TERM DEBT
--------------
December 31, December 31,
1993 1994
------------- ------------
<S> <C> <C>
NON-INTEREST BEARING AND
FORGIVABLE INTEREST
GOVERNMENT LOANS
Non-Interest Bearing Unsecured Loan
Payable to Western Economic Diversification, a Canadian federal government
agency. This loan will be advanced to a maximum of $5,947,000 to assist in the
building and equipping of a manufacturing facility. This loan, after receipt of the
maximum loan amount, is repayable on a semi-annual instalment basis
commencing in 1996 and ending in 2001. (See below). . . . . . . . . . $10,068,880 $3,664,577
Forgivable Interest Loan
Payable to Manitoba Development Corporation and secured by a debenture with a
fixed charge on the manufacturing facility land and building. Funds have been
advanced to assist in the building of a manufacturing facility. This loan is
repayable on a quarterly instalment basis commencing December 31, 1996 and
ending on December 31, 1997 . . . . . . . . . . . . . . . . . . . . . 2,866,420 2,946,983
----------- ----------
12,935,300 6,611,560
=========== ==========
UNSECURED LOANS
Unsecured Notes Payable
Interest of 5% per annum, payable at maturity and originally was maturing at
various dates in 1995 through 1996 (see below). . . . . . . . . . . . 7,500,000 -
----------- -----------
OTHER
Term Bank Loan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,000 -
Construction Bank Loan
Secured by general security agreement, pledging all of the Company's assets,
including the shares of subsidiary companies and a debenture with a fixed charge
on the manufacturing facility land and building, bearing interest at bank prime
rate plus 1.5%. This loan is repayable in 20 equal quarterly installments of
$250,000 commencing June 30, 1995, with a final payment due September 30,
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,394,000 5,429,000
Mortgage Payable
Secured by land and building, bearing interest at 12.125% per annum, payable in
blended monthly instalments of $25,052, and the balance of approximately
$2,400,000 is due on maturity, November 1, 1999. . . . . . . . . . 2,474,524 2,466,184
----------- -----------
7,963,524 7,895,184
----------- -----------
28,398,824 14,506,744
Less current portion. . . . . . . . . . . . . . . . . . . . . . . . . 68,339 794,381
----------- ----------
$28,330,485 $13,712,363
=========== ===========
</TABLE>
In March 1994, Trimel and WED finalized the transfer of $6,838,000 of the
WED loan to TCI on a non-recourse basis and revised the repayment terms of
the unsecured loan (See Note 2).
In March 1994, $7,500,000 of the unsecured notes payable and accrued
interest thereon were transferred to TCI on a non-recourse basis. (See
Note 2)
Interest expense on long-term debt amounted to $983,698 in the year
ended December 31, 1994, $1,034,513 in the year ended December 31, 1993,
and $1,507,500 in the year ended December 31, 1992. In addition, in the
F11
PAGE
<PAGE>
BIOVAIL CORPORATION INTERNATIONAL
---------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(All dollar amounts are expressed in Canadian dollars)
8. LONG-TERM DEBT - (Continued)
--------------
years ended December 31, 1992 and 1993, interest on the construction bank
loan aggregating $317,758 and $111,785, respectively, was capitalized and
included in the cost of the manufacturing facility. No interest was
capitalized in the year ended December 31, 1994.
In November 1992, a then subsidiary company issued 4% convertible
subordinated debentures (the "Debentures") with an aggregate principal
amount of $8,697,000. The Debentures bore interest from their date of
issuance at the rate of 4% per annum.
On December 31, 1992 and February 23, 1993, $3,050,160 and $5,550,600
principal amounts, respectively, of the Debentures plus accrued
interest thereon were converted into 344,284 and 627,556 share of common
stock of a then subsidiary company, at a per share conversion price of
U.S.$7.00. The conversions of these Debentures resulted in dilution
gains of $2,468,373 and $4,775,996 in 1992 and 1993, respectively.
In addition, on September 3, 1993, the then subsidiary company issued
464,243 shares of common stock at a price of U.S. $7.00 per share for net
proceeds of $3,486,339 resulting in a further dilution gain of $2,997,114.
Pursuant to contractual arrangements with respect to the use of proceeds
from the issuance of the unsecured notes, the Company is obligated to make
expenditures which will directly or indirectly be of economic benefit to
the Province of Saskatchewan in the amount of $6,750,000 at December 31,
1994.
Principal repayments on long-term debt are as follows:
1995 . . . . . . . . . . . . . . . . $ 794,381
1996 . . . . . . . . . . . . . . . . 2,407,553
1997 . . . . . . . . . . . . . . . . 4,761,854
1998 . . . . . . . . . . . . . . . . 1,713,354
1999 and thereafter.. . . . . . . . . 4,829,602
----------
$14,506,744
===========
9. SHARE CAPITAL
-------------
AUTHORIZED AND ISSUED SHARES
Following the March 29, 1994 amalgamation described in Note 2, the
Company is authorized to issue 25,000,000 shares of common stock
without par value.
<TABLE>
Common shares Number of Shares
- -------------
Amount
----------------- ----------
<S> <C> <C>
Balance, December 31, 1991 . . . .. . . . 3,579,296 $ 7,587,854
Issued for cash. . . . . . . . . . . .. . 17,000 204,000
Issued for settlement of debt and
accrued interest thereon. . . . . . 600,000 3,000,000
--------- ----------
Balance, December 31, 1992 . . . . . . . 4,196,296 10,791,854
Issued on the exercise of options. . . . 40,000 230,000
Shares acquired for cancellation . . . . (35,700) (92,884)
---------- ------------
Balance, December 31, 1993 (see Note 2). 4,200,596 10,928,970
In exchange for Class A Special Shares 906,542 4,850,000
In exchange for BCI's common shares
held by the minority interest. 3,138,438 2,939,102
Issued on the exercise of options. . . . 28,763 86,289
---------- -----------
Balance, December 31, 1994 . . . . . . . 8,274,339 $18,804,361
========== ===========
</TABLE> F12
PAGE
<PAGE>
BIOVAIL CORPORATION INTERNATIONAL
---------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(All dollar amounts are expressed in Canadian dollars)
9. SHARE CAPITAL - (CONTINUED)
-------------
<TABLE>
Class A Special Shares Number of Shares
---------------------- Amount
----------------- --------
<S> <C> <C>
Issued in settlement of debt and accrued
interest thereon in 1992 and balance,
December 31, 1992 . . . . . . . . . 6,354,000 $ 6,354,000
Shares acquired on redemption. . . . . . (1,504,000) (1,504,000)
----------- -----------
Balance, December 31, 1993 . . . . . . . 4,850,000 4,850,000
---------- ----------
Exchange for common shares on
amalgamation. . . . . . . . . . . . 4,850,000 (4,850,000)
---------- -----------
Balance, December 31, 1994 . . . . . . . - -
========== ==========
</TABLE>
35,700 common shares were acquired for cancellation in 1993 at a cost
of $168,481. The excess of the cost of common shares acquired over
the stated capital thereof has been charged to deficit.
The Company has reserved 742,500 common shares for issuance under
the Company's stock option plan.
As at December 31, 1994, the Company has granted to certain directors,
employees, and consultants options which entitle them to acquire an
aggregate of 595,814 shares of common stock at exercise prices ranging
from CDN $3.00 to U.S.$7.30 per share and which become exercisable in
three equal annual amounts commencing one year after the date of grant.
As at December 31, 1994, options on 101,973 shares of common stock
were exercisable.
10. SELLING AND ADMINISTRATIVE EXPENSES
-----------------------------------
Included in selling and administrative expenses are $1,607,599,
$1,484,051 and $1,031,683 for the years ended December 31, 1994, 1993,
and 1992, respectively, which relate to activities associated with
preparing the Company's manufacturing facility in Steinbach, Manitoba
for commercial production. The manufacturing facility commenced
commercial production in October 1994.
11. REORGANIZATION EXPENSES
-----------------------
Reorganization expenses comprise amounts incurred in connection with
the March 29, 1994 amalgamation of the Company's predecessor companies as
described in Note 2.
12. OFFERING EXPENSES
-----------------
Offering expenses comprise amounts incurred in connection with a
proposed public offering of a subsidiary company's common shares in
1992 that was not consummated.
F13
PAGE
<PAGE>
BIOVAIL CORPORATION INTERNATIONAL
---------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(All dollar amounts are expressed in Canadian dollars)
13. INCOME TAXES
------------
The major factors which caused variations from the Company's combined
federal and provincial statutory income tax rate of 44.34% applicable
to income (loss) from continuing operations are as follows:
<TABLE>
Year ended Year ended Year ended
December 31, December 31, December 31,
1992 1993 1994
------------- -------------- ------------
<S> <C> <C> <C>
Provision for (recovery of) income taxes
based on statutory rate . . . . . . . . . $(5,073,225) $(1,309,090) $5,880,610
Reduction of income taxes resulting
from income of foreign subsidiary taxed at
lower effective rate. . .. . . . . . . . . . (441,715) (764,213) (862,124)
Non-taxable portion of capital gain on
settlement of debt. . .. . . . . . . . . . - - 236,107)
Benefit of losses not
recognized for accounting purposes . . . . . . . 5,958,074 2,402,261 -
Benefit of utilization of loss carry forwards. . . - - (3,179,663)
---------- ---------- ----------
$ 443,134 $328,958 $602,716
========== ========== ==========
</TABLE>
At December 31, 1994 the Company has accumulated losses for federal and
provincial income tax purposes and unclaimed investment tax credits which can
be used to offset future taxable income and/or to reduce income taxes
payable. These losses and investment tax credits expire as follows:
<TABLE> Investment
Losses Tax Credits
--------------------------- -----------
Federal Provincial
------- ----------
<S> <C> <C> <C>
1996 . . . . . . $ 189,000 $ 1,567,000 $ -
1997 . . . . . . 7,501,000 8,451,000 -
1998 . . . . . . 9,592,000 10,493,000 122,000
1999 . . . . . . 4,680,000 5,661,000 1,293,000
2000 . . . . . . - - 695,000
2001 . . . . . . - - 671,000
2002 . . . . . . - - 620,000
2003 . . . . - - 375,000
----------- ----------- ----------
$21,962,000 $26,172,000 $3,776,000
=========== =========== ==========
</TABLE>
The benefits of these losses carried forward and investment
tax credits will be recorded when realized.
14. EARNINGS (LOSS) PER SHARE
-------------------------
Earnings (loss) per share has been calculated using the weighted average
number of shares outstanding during the year. For the purpose of this
calculation, the loss for the year ended December 31, 1992 was increased,
and the income for the years ended December 31, 1993 and 1994 was reduced,
by cumulative undeclared dividends on the Class A Special Shares. The effect
on the loss per share of the exercise or conversion of all options and
Class A Special Shares outstanding in 1992 is not dilutive. The earnings
per share in 1993 on a fully diluted basis giving effect to the exercise
of all options and conversion of all Class A Special Shares into
common shares effective January 1, 1993 would have been $1.02 per share.
Adjusted basic earnings per share in 1994, calculated
as though the conversion of Class A Special shares had occurred at the
beginning of the year amounted to $1.76 per share. Fully diluted
earnings per share in 1994, giving effect to the conversion of Class A
Special Shares and the exercise of all outstanding
options as if they had occurred at the beginning of the year, amounted
to $1.50 per share.
F14
PAGE
<PAGE>
BIOVAIL CORPORATION INTERNATIONAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts are expressed in Canadian dollars)
15. OPERATING LEASES
----------------
Minimum lease commitments under operating leases for premises,
automobiles and offices and laboratory equipment for each of the
next five years are as follows:
1995 . . . . . . . . . . $379,000
1996 . . . . . . . . . . .260,000
1997 . . . . . . . . . . .261,000
1998 . . . . . . . . . . .175,000
1999 . . . . . . . . . . . 55,000
16. CHANGE IN NON-CASH OPERATING WORKING CAPITAL
--------------------------------------------
<TABLE>
Year ended Year ended Year ended
December 31, December 31, December 31,
1992 1993 1994
----------- ------------ ------------
<S> <C> <C> <C>
Accounts receivable. . . $ 910,462 $(1,294,295) $(3,505,486)
Due from directors . . . . . . . (101,211) (393,177) -
Deposits and prepaid expenses. . (262,817) 98,690 281,078
Inventories. . . . . . . . . . . - - (672,625)
Loans to related parties . . . . - 67,494 118,943
Accounts payable
and accrued liabilities. . . . (533,222) 842,190 2,665,244
Income taxes payable . . . . . . 114,120 (155,968) 313,054
Deferred revenue . . . . . . . . - 465,777 1,270,448
---------- ---------- ---------
$ 127,332 $(369,289) $470,656
========== =========== ========
</TABLE>
17. CONTINGENCIES
-------------
a) On November 12, 1993, a patent infringement lawsuit was commenced in U.S.
District Court, for the District of New Jersey, by Marion Merrell Dow Inc.
("MMD"), Carderm Capital L.P. and Elan Corporation PLC against Hoechst-Roussel
Pharmaceuticals, Inc. ("Hoechst-Roussel"). Hoechst-Roussel was licensed by
the Company for the once-daily controlled release formulation of diltiazem.
The complaint alleges that Hoechst-Roussel has infringed certain patents
relating to controlled absorption of diltiazem formulations and seeks, among
other things, to enjoin Hoechst-Roussel from infringing the plaintiffs'
patents. Hoechst-Roussel has answered the complaint alleging that
Hoechst-Roussel has not infringed the patents and that the patents are
invalid and unenforceable. The Company believes the lawsuit is without merit.
On February 21, 1995 Hoechst-Roussel filed a Motion for an Order granting
Summary Judgement of Non-infringement under Rule 56 Fed. R. Civ. P., to
dismiss all patent litigation with MMD.
Hoechst-Roussel's parent, Hoechst AG has announced its intention to
acquire MMD. As a consequence, Hoechst-Roussel and the Company agreed that
the rights agreement between it and the Company dated June 30, 1993 (the
"Rights Agreement") will be terminated effective June 30, 1995.
b) On October 20, 1994, the Company commenced legal proceedings in the United
States District Court, District of Puerto Rico against MMD, four of its
officers and a related limited partnership. The action was brought to recover
damages in the sum of U.S. $480,000,000, before trebling, and for injunctive
relief for a number of violations and based on 12 counts of anti-trust and
business torts.
F15
PAGE
<PAGE>
BIOVAIL CORPORATION INTERNATIONAL
---------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(All dollar amounts are expressed in Canadian dollars)
17. CONTINGENCIES - (Continued)
-------------
c) Effective April 28,1995, the Company entered into a settlement whereby
Hoechst-Roussel agreed to pay the Company the sum of U.S.$7.5 million in
consideration for the Company entering into a series of agreements and
releases. The agreements and releases provide for the immediate payment
to the Company of U.S.$2 million, now received. Payment of the remaining
U.S.$5.5 million together with the withdrawal of the Company's complaint
against MMD, four officers of MMD and a related limited partnership in
the United States District Court for the District of Puerto Rico, as
referred to in (b) above, shall be undertaken upon the completion
by Hoechst AG of the acquisition of all of the outstanding shares of the
common stock of MMD pursuant to a merger or otherwise.
In addition, the said agreements and releases provide that within five
days from the completion of such acquisition, Hoechst-Roussel will also
at that time (a) withdraw or otherwise dismiss the patent-related
complaint filed by MMD and Carderm Capital L.P. against Hoechst-Roussel
in the United States District Court for the District of New Jersey;
(b) use its best efforts to have Elan Corporation plc withdraw or
otherwise dismiss the same complaint;and (c) withdraw the Citizen's
Petition bearing the date August 5, 1994 filed by MMD with the
United States Food and Drug Administration.
As a consequence of the settlement agreement, the Rights Agreement has
been terminated and Hoechst-Roussel has agreed to re-assign and transfer
to the Company all rights pertaining to the licensed product, which now
includes all relevant clinical and scientific data and intellectual
property.
18. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
------------------------------------------------------
<TABLE>
Year ended Year ended Year ended
December 31, December 31, December 31,
1992 1993 1994
----------- ------------ -------------
<S> <C> <C> <C>
Reconciliation of net income (loss)
under Canadian and U.S. GAAP
Net income (loss) as shown in the consolidated
statement of income (loss) and deficit . . . . . . . $(10,440,327) $ 5,198,727 $13,262,540
Items excluded from income under U.S. GAAP
Dilution gain on issuance of common shares
by a subsidiary company . . . . . . . . . . . . . . (2,468,373) (7,773,080) -
Interest income on amounts due from
directors deducted from shareholders' equity under
U.S. GAAP . . . . . . . . . . . . . . . . . . . . (119,825) (121,529) (29,979)
Gain on debt settlement treated as contributed
surplus under U.S. GAAP. . . . . . . . .. . . . . . - - (11,151,170)
Unrealized foreign exchange gain included
in income under U.S. GAAP. . . . . . . . . . . . . . 75,236 - -
------------- ------------ -----------
Net income (loss) according to U.S. GAAP . . .. . . . . . $(12,953,289) $(2,695,882) $2,081,391
============= ============ ===========
Earnings (loss) per share under U.S. GAAP. . . . . . . . . . . . $(3.80) $(0.66) 0.28
============ ============
Weighted average number of common
shares outstanding under U.S. GAAP(1). . . . . . . . . . .3,409,575 4,066,473 7,545,105
=========== ============
_______________________________
(1) The weighted average number of common shares outstanding for purposes of
the computation of the earnings (loss) per share data under U.S. GAAP gives
effect to the exercise of all outstanding options and excludes the shares
acquired by directors in consideration for loans to directors deducted from shareholders' equity.
</TABLE>
F16
<PAGE>
18. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES - (Continued)
------------------------------------------------------
<TABLE>
December 31, December 31,
1993 1994
------------- -------------
<S> <C> <C>
Reconciliation of shareholders' equity (capital deficiency)
under Canadian and U.S. GAAP
Shareholders' equity (capital deficiency) as shown in
consolidated balance sheet. . . . . . . . . . . . . . . . . . . . . . $(6,313,132) $10,782,561
Amounts due from directors added
to capital deficiency under U.S. GAAP . . . . . . . . . . . . . . . . (2,031,477) -
------------ ------------
Shareholders' equity (capital deficiency) according to U.S. GAAP $(8,344,609) $10,782,561
============ =============
</TABLE>
The following items included in the table above give rise to differences
in net income under generally accepted accounting principles in the United
States ("U.S. GAAP")
Accounting for issuance of shares by a subsidiary
Under Canadian GAAP, the issuance by a subsidiary of its common shares,
in an amount in excess of the Company's carrying value, is reflected as a
dilution gain on issuance of common shares by a then subsidiary company in
the Company's consolidated statement of income (loss) and deficit.
Under U.S. GAAP, the additional equity raised by BCI would be reflected
as a capital transaction in the Company's shareholders equity (capital
deficiency).
Accounting for gain on debt settlement
Under Canadian GAAP, the assignment of debt of TCI, in an amount in
excess of the carrying value of the net assets transferred to TCI in
consideration for assuming such debt, is reflected as gain on debt
settlement in the Company's consolidated statement of income and deficit.
Under U.S. GAAP, the gain on settlement of such debt would be reflected
as a capital transaction in the Company's shareholders' equity.
Amounts due from directors and interest thereon
Under U.S. GAAP, the capital deficiency would be adjusted to reflect
amounts due from directors arising on the issuance of shares as an increase
in capital deficiency as opposed to amounts receivable as is the case under
Canadian GAAP.
Furthermore, under U.S. GAAP, interest income earned on the amounts due
from directors would be treated as a capital transaction and excluded from
income.
Unrealized foreign exchange gain on long-term debt
Under U.S. GAAP, the unrealized foreign exchange gain on the U.S. dollar
denominated convertible subordinated debentures outstanding at December 31,
1992 of $75,236 would have been included in income as opposed to being
deferred as is the case under Canadian GAAP.
F17
PAGE
<PAGE>
BIOVAIL CORPORATION INTERNATIONAL
---------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(All dollar amounts are expressed in Canadian dollars)
18. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES - (Continued)
------------------------------------------------------
Under U.S. GAAP, for purposes of presentation of changes in financial
position, the following non-cash transactions would not be shown as
financing or investing activities but would be shown as supplemental cash
flow information:
<TABLE>
<S> <C> <C>
1992 Conversion of Debentures into common shares of
a subsidiary company and the equivalent
amount included in issuance of share capital. . . . . $ 5,771,280
Issuance of common shares on settlement of debt. . . . 3,000,000
Issuance of Class A Special Shares on
settlement of debt. . . . . . . . . . . . . . . . .. . 6,354,000
1993 Conversion of Debentures into common
shares and the equivalent aggregate
amount included in minority interest and
dilution gain . . . . . . . . . . . . . . . . . . . . 5,218,056
Issuance of common shares on the exercise
of stock options. . . . . . . . . . . . . . . . . . . . . 230,000
</TABLE>
Furthermore, current bank indebtedness would not be included as a
component of cash and cash equivalents as is the case under Canadian GAAP.
Accordingly, under U.S. GAAP, the increase in bank indebtedness of $2,496,713
in the year ended December 31, 1992, and the decrease in bank indebtedness of
$835,108 in the year ended December 31, 1993 and $173,526 in the year ended
December 31, 1994 would be included in cash provided by (used in) financing
activities, and cash at December 31, 1992, 1993 and 1994 would have been
$3,576,476, $3,817,894 and $3,950,746 respectively.
Under U.S. GAAP, the following additional supplemental cash flow
disclosure would be provided:
Year ended Year ended Year ended
December 31, December 31, December 31,
1992 1993 1994
------------ ----------- -----------
Cash paid for:
Interest . . . . . . . . . . . . $1,980,520 $859,858 $759,402
Income taxes . . . . . . . . . . 383,213 499,980 501,560
Under U.S. GAAP, the following additional disclosure would be provided
pursuant to the requirements of SFAS No. 109 - "Accounting for Income Taxes":
As at December 31, 1994, the Company has unused tax benefits of
$25,738,000 related to net operating loss and tax credit carry forwards.
Under U.S. GAAP, a valuation allowance of an equivalent amount would be
recognized to offset the related deferred tax asset due to the uncertainty of
realizing the benefit of the loss and tax credit carry forwards.
The net change in the valuation allowance for the deferred tax asset
was an increase of $2,402,261 in the year ended December 31, 1993 related to
the additional benefit arising from the operating loss carry forwards in 1993
and a reduction in the year ended December 31, 1994 of $3,179,663 relating to
the utilization of such benefits.
F18
PAGE
<PAGE>
19. SEGMENTED INFORMATION AND MAJOR CUSTOMERS
The Company considers that its operations fall principally into one class -
providing formulation, development and registration of pharmaceutical
products for the pharmaceutical industry.
Operations by geographic segment
<TABLE>
Canadian Foreign
Operations Operations Eliminations Consolidated
---------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
December 31, 1994
- -----------------
Revenue
- External $15,202,823 $9,029,989 $ - $24,232,812
- Inter-segment 1,796,423 - (1,796,423) -
------------ ----------- ------------ -----------
$16,999,246 $ 9,029,989 $(1,796,423) 24,232,812
----------- ----------- -----------
Operating income (loss) $(1,440,677) $ 5,370,739 $ - 3,930,062
------------ ----------- -------------
Interest expense (824,658)
Gain on debt settlement 11,151,170
Reorganization expenses (391,318)
Provision for income taxes (602,716)
-----------
Net income 13,265,540
Total assets $30,508,096 $ 5,417,813 $ - $35,925,909
----------- ----------- ----------- ===========
December 31, 1993
- -----------------
Revenue
- External $8,831,242 $5,903,018 $ - $14,734,260
- Inter-segment 1,558,745 (1,558,745)
----------- ----------- ------------ ------------
$10,389,987 $ 5,903,018 $(1,558,745) 14,734,260
----------- ----------- ------------ -----------
Operating income (loss) $(4,430,026) $ 2,433,143 $ - (1,996,883)
----------- ----------- ------------
Interest expense (955,508)
Provision for income taxes (328,958)
Minority interest (961,669)
Dilution gain on issuance
of common shares by a
subsidiary company 7,773,080
Gain on sale of a subsidiary
company 1,668,665
-----------
Net income $ 5,198,727
===========
Identifiable assets $26,474,409 $ 4,102,565 $ - $30,576,974
----------- ----------- -----------
Corporate assets 225,005
-----------
Total assets $30,801,979
===========
</TABLE>
F19
<PAGE>
BIOVAIL CORPORATION INTERNATIONAL
QUARTERLY REPORT
INDEX
PART 1. FINANCIAL INFORMATION PAGES
- ------ --------------------- -----
Consolidated Balance Sheets, December 31, 1994 and
June 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Consolidated Statements of Income and Loss
for the three and six months ended June 30, 1994 and 1995 . . . . . .2
Consolidated Statements of Changes in Financial Position
for the six months ended June 30, 1994 and 1995 . . . . . . . . . . .3
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . .4
Management s Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . .6
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . .11
- -------- -----------------
(ALL DOLLAR AMOUNTS IN THIS DOCUMENT ARE EXPRESSED IN U.S. DOLLARS
UNLESS OTHERWISE STATED.)
<PAGE>
<PAGE>
BIOVAIL CORPORATION INTERNATIONAL
CONSOLIDATED BALANCE SHEETS
(All dollar amounts are expressed in U.S. dollars)
<TABLE>
June 30, December 31,
1995 1994
-------------- ------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT
Cash and short-term deposits $ 7,419,271 $ 2,818,462
Trade accounts receivable 2,946,037 5,346,000
Inventories 282,991 479,851
Deposits and prepaid expenses 545,623 57,229
----------- -----------
11,193,922 8,701,542
FIXED ASSETS, net 14,506,195 14,182,445
GOODWILL 2,718,432 2,745,557
----------- ------------
$ 28,418,549 $ 25,629,544
============ ============
LIABILITIES
CURRENT
Accounts payable and accrued
liabilities $ 4,384,033 $ 4,657,777
Income taxes payable 971,651 736,511
Deferred revenue 205,199 1,238,623
Amount due on acquisition - 955,243
Current portion of long-term debt 1,463,040 566,711
------------- -------------
7,023,923 8,154,865
------------- -------------
LONG-TERM DEBT
Non-interest bearing and forgivable
interest government loans 4,914,166 4,716,687
Other 6,620,748 5,065,713
------------ -------------
11,534,914 9,782,400
------------ -------------
18,558,837 17,937,265
CONTINGENCIES (Note 3)
SHAREHOLDERS EQUITY
Share Capital 13,771,195 13,415,031
Deficit (4,766,637) (6,442,085)
Cumulative translation adjustment 855,154 719,333
----------- ----------
9,859,712 7,692,279
----------- ----------
$ 28,418,549 $25,629,544
============ ===========
</TABLE>
The accompanying notes are an integral part of consolidated financial
statements.
<PAGE>
BIOVAIL CORPORATION INTERNATIONAL
---------------------------------
CONSOLIDATED STATEMENTS OF INCOME AND LOSS
------------------------------------------
(All dollar amounts are expressed in U.S. dollars)
(Unaudited)
<TABLE> Three Months Six Months
Ended June 30 Ended June 30
-------------- -------------
1995 1994 1995 1994
--------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
REVENUE
Contract $ 994,658 $ 983,402 $2,856,951 $1,555,550
Manufacturing - 248,898 1,253,479 248,898
Royalty and licensing 1,642,670 1,263,237 4,129,235 3,190,298
--------- --------- --------- ---------
2,637,328 2,495,537 8,239,665 4,994,746
--------- --------- --------- ---------
EXPENSES
Cost of contract revenue 656,260 687,093 1,670,029 1,314,392
Cost of manufactured goods sold - 139,746 485,890 139,746
Research and product development 797,755 613,743 1,458,010 1,188,274
Selling and administrative 1,550,786 1,582,955 3,217,854 2,577,065
Royalty and commission 104,716 61,799 439,952 284,545
--------- --------- ---------
3,109,517 3,085,336 7,271,735 5,504,022
--------- --------- --------- ---------
OPERATING INCOME (LOSS) (472,189) (589,799) 967,930 (509,276)
INTEREST EXPENSE, net (115,558) (102,406) (223,590) (258,672)
GAIN ON LICENSING SETTLEMENT 1,130,046 - -
GAIN ON DEBT SETTLEMENT - - 8,071,217
REORGANIZATION EXPENSES - - - (283,236)
---------- ----------- -----------
INCOME (LOSS) BEFORE INCOME
TAXES 542,299 (692,205) 1,874,386 7,020,033
PROVISION FOR INCOME TAXES 109,505 73,257 198,938 124,027
---------- ----------- ----------- ----------
NET INCOME ((LOSS) $ 432,794 $ (765,462) $1,675,448 $6,896,006
EARNINGS PER SHARE
Net income (loss) before gians on
debt settlement and licensing
settlement $ (0.08) $ (0.13) $ 0.07 $ (0.20)
============ ============ =========== ============
Net income (loss) $ 0.05 $ (0.13) $ 0.20 $ 1.17
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OPUTSTANDING 8,279,809 5,906,795 8,279,809 5,906,795
=========== ============ ========== ==========
</TABLE>
The accompanying notes are an integral part of consolidated financial
statements
2
PAGE
<PAGE>
BIOVAIL CORPORATION INTERNATIONAL
---------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
---------------------------------------------------------
(All dollar amounts are expressed in U.S. dollars)
(Unaudited)
<TABLE>
Six Months Ended
June 30
---------------------------
1995 1994
---------- ------------
<S> <C> <C>
NET INFLOW (OUTFLOW) OF CASH RELATED
TO THE FOLLOWING ACTIVITIES
OPERATING
Net income for period $1,675,448 $6,896,006
Depreciation and amortization 588,265 359,212
Gain on debt settlement - (8,071,217)
---------- ----------
2,263,713 (815,999)
Change in non-cash operating working
capital (Note 2) (72,265) 2,229,349
---------- ----------
2,191,448 1,413,350
---------- ----------
INVESTING
Additions to fixed assets
(540,826) (516,282)
FINANCING
Issuance of share capital 83,500 8,686
Increase in long-term debt 2,831,236 181,667
Reduction in long-term debt (392,742) (24,653)
--------- ----------
2,521,994 165,700
--------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 428,193 114,447
--------- ---------
INCREASE IN CASH 4,600,809 1,177,215
CASH AND SHORT-TERM DEPOSITS, BEGINNING
OF PERIOD 2,818,462 2,883,655
--------- ---------
CASH AND SHORT-TERM DEPOSITS, END OF
PERIOD $7,419,271 $4,060,870
========== ==========
</TABLE>
The accompanying notes are an integral part of consolidated financial
statements.
3
<PAGE>
1. SIGNIFICANT ACCOUNTING POLICIES
--------------------------------
Biovail Corporation International (the Company ), was amalgamated
effective March 29, 1994 under the laws of the province of Ontario. The
Company s accounting and reporting policies confirm to generally accepted
accounting principles in Canada.
Change in reporting currency
Effective January 1, 1995, the Company has commenced reporting its
financial statements in U.S. dollars, while the currency of measurement
remains Canadian dollars. For purposes of this presentation, Canadian dollar
amounts, including the 1994 amounts shown for purposes of comparison, have
been translated into U.S. dollars at the respective period end rates of
exchange.
1994 figures
Certain of 1994 figures have been reclassified to conform to the 1995
presentation.
For a full description of the other accounting policies of the
Company, reference is made to the annual report on Form 20-F
for the year ended December 31, 1994.
In the opinion of management, all adjustments necessary for a fair
presentation of the financial position, results of operations and cash flows
for the period presented have been made and all such adjustments are of a
normal recurring nature.
2. CHANGE IN NON-CASH OPERATING WORKING CAPITAL
--------------------------------------------
Six Months Six Months
ended ended
June 30, June 30,
1995 1994
------------- -------------
Accounts receivable $2,412,418 $(26,634)
Inventory 206,613 (636,340)
Due from directors - 25,368
Deposits and prepaid expenses
(487,231) 34,988
Amount due on acquisition (974,658) -
Accounts payable and accrued
liabilities (382,667) 444,586
Income taxes payable 211,857 (142,595)
Deferred revenue (1,058,599) 2,529,976
---------- ----------
$(72,265) $2,229,349
========== ==========
3. CONTINGENCIES
-------------
a) On November 12, 1993, a patent infringement lawsuit was commenced
in U.S. District Court, for the District of New Jersey, by Marion Merrell
Dow Inc.("MMD"), Carderm Capital L.P. and Elan Corporation PLC against
Hoechst-Roussel Pharmaceuticals, Inc. ("Hoechst-Roussel"). Hoechst-Roussel
was licensed by the Company for the once-daily controlled release
formulation of Diltiazem. The complaint alleges that Hoechst-Roussel has
infringed certain patents relating to controlled absorption of Diltiazem
formulations and seeks, among other things, to enjoin Hoechst-Roussel from
infringing the plaintiffs' patents. Hoechst-Roussel has answered the
complaint alleging that Hoechst-Roussel has not infringed the patents and
that the patents are invalid and unenforceable. The Company believes the
lawsuit is without merit.
4
<PAGE>
3. CONTINGENCIES (Continued)
On February 21, 1995 Hoechst-Roussel filed a Motion for an Order
granting Summary Judgement of Non-infringement under Rule 56 Fed. R. Civ. P.,
to dismiss all patent litigation with MMD.
Hoechst-Roussel's parent, Hoechst AG has announced its intention to
acquire MMD. As a consequence, Hoechst-Roussel and the Company agreed that
the rights agreement between it and the Company dated June 30, 1993 (the
"Rights Agreement") will be terminated effective June 30, 1995.
b) On October 20, 1994, the Company commenced legal proceedings in the
United States District Court, District of Puerto Rico against MMD, four of
its officers and a related limited partnership. The action was brought
to recover damages in the sum of U.S. $480,000,000, before trebling, and
for injunctive relief for a number of violations and based on 12 counts
of anti-trust and business torts.
c) Effective April 28,1995, the Company entered into a settlement
whereby Hoechst-Roussel agreed to pay the Company the sum of U.S. $7.5
million in consideration for the Company entering into a series of agreements
and releases. The agreements and releases provide for the immediate payment
to the Company of U.S. $2 million, which has been received. Payment of the
remaining U.S. $5.5 million together with the withdrawal of the Company's
complaint against MMD, four officers of MMD and a related limited partnership
in the United States District Court for the District of Puerto Rico, as
referred to in (b) above, was to be undertaken upon the completion by Hoechst
AG of the acquisition of all of the outstanding shares of the common stock of
MMD pursuant to a merger or otherwise. The completion of the acquisition has
now been completed and Hoechst-Roussel has paid the company the remaining
U.S. $5.5 million; as well, the Puerto Rico suit has been withdrawn by the
Company.
Furthermore, the said agreements and releases provide that within
five days from the completion of such acquisition, Hoechst-Roussel will also
at that time (a) withdraw or otherwise dismiss the patent-related complaint
filed by MMD and Carderm Capital L.P. ( Carderm ) against Hoechst-Roussel
in the United States District Court for the District of New Jersey; (b) use
its best efforts to have Elan Corporation plc withdraw or otherwise
dismiss the same complaint; and (c) withdraw the Citizen's Petition bearing
the date August 5, 1994 filed by MMD with the United States Food and Drug
Administration. As a result of the Agreements and releases above referred
to, the Rights Agreement between Hoechst-Roussel and the Company has been
terminated and Hoechst-Roussel has re-assigned and transferred to the Company
all rights pertaining to the licensed product, which now includes all
relevant, clinical and scientific data and intellectual property.
In addition, MMD and Carderm have filed stipulations with prejudice
in the United States District Court for the District of New Jersey, the
effect of which is to terminate the involvement by MMD and Carderm in the New
Jersey suit. Hoechst-Roussel is currently engaged in effecting Elan
Corporation plc s withdrawal of the New Jersey suit. Furthermore,
MMD has now formally withdrawn the Citizen s Petition by so advising the
United States Food and Drug Administration in writing.
<PAGE>
